Tom's Campgrounds Is a Firm Conducting Business in a Competitive

question 116

Multiple Choice

Tom's Campgrounds is a firm conducting business in a competitive market. Tom realizes he is making a loss and is trying to decide whether to shut down or stay open. He should stay open:

• A) regardless of the price being charged.
• B) if the price being charged is less than his minimum average variable cost (AVC).
• C) if his revenues do not cover his variable costs.
• D) if his revenues cover his variable costs.
• E) as long as he is making revenue.

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Definitions:

Effective Rate

The actual interest rate on an investment or loan, taking into account the compounding of interest, as opposed to the nominal rate.

Monthly Rate

The interest rate or any other rate measured over the period of one month, often expressed as a percentage per month.

Principal

The person (client) for whom a service is performed. Amount that is borrowed using credit.

Second Mortgage

A type of subordinate mortgage made while an original mortgage is still in effect, securing the collateral by the same property.